A new RAND Corporation report finds that during 2020 the prices paid by employers and private insurers for both inpatient and outpatient services averaged 224% of what Medicare would have paid. Unlike many other studies that have examined health care price variation, this study reports prices and identifies hospitals and groups of hospitals under joint ownership (hospital systems) by name.

The study used information from more than 4,000 hospitals in 49 states and Washington D.C. from 2018 to 2020 expanding and refining earlier research by RAND on the topic.  (Maryland was excluded because it has a system in place where the privately insured and Medicare recipients pay the same price.)

The data showed that some states including Hawaii, Arkansas, and Washington had relative prices under 175% of Medicare, while other states such as Florida, West Virginia, and South Carolina had relative prices that were at or above 310% of Medicare’s cost. The 224% average total for 2020 is a reduction from the 247% figure reported for 2018 in RAND’s previous study. This reduction is the result of a substantial increase in the volume of claims in the analysis from states with prices below the previous average price.

“Employers can use this report to become better-informed purchasers of health benefits,” said Christopher Whaley, the study’s lead author and a policy researcher at RAND, a nonprofit research organization. “This work also highlights the levels and variation in hospital prices paid by employers and private insurers, and thus may help policymakers who may be looking for strategies to curb health care spending.”

The study found that prices for COVID-19 hospitalization were similar to prices for overall inpatient admissions and averaged 241% of what was paid for Medicare patients.

Spending on hospital services accounts for 37% of total personal health care spending in 2019, and hospital price increases are key drivers of growth in per capita spending among the privately insured.

While recent price transparency initiatives have increased information about procedure-level prices available to patients, employers (who provide most private insurance) typically do not have usable information about the prices negotiated with hospitals on their behalf.

The analysis includes facility and professional claims for inpatient and outpatient services provided by both Medicare-certified short-stay hospitals and other facility types. For the first time, the analysis also includes more than 4,000 ambulatory surgical centers, which are free-standing facilities that perform outpatient surgical services.

Data sources include $78.8 billion in spending on hospital-based care and $2.0 billion in spending on care in ambulatory surgery centers.

The full study may be read here.

Photo by Karolina Grabowska